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Coming off the worst week of the year, market participants have a cautious stance in the stock market today as earnings season kicks off – and will likely disappoint.
The Dow fell 13.29 points, or 0.09%, to 14,565.25 last week. The S&P shed 15.91, or 1.01%, to end the week at 1,553.28.
Monday, guarded investors kept a wary eye on developments in Eurozone, nuclear tensions in the Korean Peninsula, and Alcoa Inc.'s (NYSE: AA) earnings after the bell-the unofficial kick-off to Q1 earnings reports.
Red flags are waving that companies will report a slowdown in corporate profits. A number of companies have delivered lower guidance, with pre-earnings announcements sloped to the negative side. Companies in the S&P are expected to increase Q1 earnings a measly 1.5% over last year, according to Thomson Reuters.
Weak earnings could push any nervous investors to take gains and bail on markets for a while.
"Right now, projections for earnings in 2013 and the market are based on optimistic assumption," Howard Silverblatt, senior index analyst with S&P Dow Jones Indices told Barron's. "We can meet estimates if things move in the right direction. But the economy does not go straight up or down. There are bumps up or down. There are bumps in the road. And investors rarely get everything they need or want."
Here are some upcoming earnings reports to watch, as well as two of the biggest deals moving stocks this week.
Stock Market Today: Don't Focus on Alcoa
- Dow component Alcoa Inc. (NYSE: AA) was trading up .8% at $8.31 ahead of its earnings release. The aluminum producer is expected to post profit of 8 cents a share, down from 10 cents from the same quarter a year earlier. Sales are projected to come in at $5.9 billion, down 1.6% due to slumping aluminum prices.
Analysts warn not to read too much into Alcoa's report. The bellwether really doesn't carry much stock market clout anymore. Shares have lagged behind the S&P 500 Index by 14% this year.
"Do not get caught up in the hype of Alcoa being a good proxy for upcoming earnings season because it is not and certainly its stock price has not reflected it either," Nick Raich, chief executive officer at The Earnings Scout told MarketWatch.
- The biggest earnings this week come Friday when banking behemoths JPMorgan Chase & Co (NYSE: JPM) and Wells Fargo & Co (NYSE: WFC) report.
JPM is expected to earn $1.39, up from $1.19 in the same quarter a year ago. The bank has been under close scrutiny since losing $6.2 billion last year in a London whale trade. Shares were up in afternoon trading 0.7% to $48.24.
Forecasts are for Wells Fargo, the largest position in Warren Buffett's Berkshire Hathaway (NYSE: BRK.A, BRK.B), to report a drop in profitability following 11 straight quarters of earnings growth. The decline is expected due to a slowdown in market refinancing. Estimates are for Wells to earn 89 cents a share, versus 75 cents in the same quarter last year.
Analysts will look to Wells Fargo for any signs of housing market health, as Wells dominates home lending as the largest U.S. home mortgage bank.
- In other corporate news Monday, General Electric Co. (NYSE: GE) announced it's buying energy company Lufkin Industries Inc. (Nasdaq: LUFK) in a $3.3 billion deal. Shares of Lufkin, which builds and maintains equipment for oil and gas wells, soared nearly 40%.
GE might not have gotten such a great deal, though. Analysts balked at the company paying 13.5 times the 2013 estimates for earnings before interest, taxes, depreciation and amortization and a 38% premium to the stock's Friday closing price. Raymond James called it a "hefty" premium.
- Anheuser-Busch InBev's (NYSE: BUD) proposed $20 billion acquisition of Mexican brewer Grupo Modelo is back on the table. The companies, along with Constellation Brands (NYSE: STZ), say they have reached an agreement that will settle the Justice Department's objections to the deal.
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